ppt on session ii (2)

7/28/2019 Ppt on Session II (2)

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SESSION 2

FORMS OF BUSINESS ORGANISATION

LEGAL ISSUES

JANUARY 30TH 2013IILM-GSM & CMS


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INSTRUCTIONAL OBJECTIVES

Describe the three types of business organizations in a market economyand cite examples from the local community or region

Compare the advantages and disadvantages of each type of businessorganization in a market economy

RATIONALE:

Entrepreneurs need to understand the advantages and disadvantages ofeach type of business organization.

Legal liability, tax obligations, and financial responsibilities are all factors

that entrepreneurs must review when deciding how to organize the newbusiness.


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Choosing a Form of BusinessOrganisation

Factors governing choice of business form

Nature of business

Scale of operations

Degree of control desired by owmer

Amount of required capital

Volume of risk & liability


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A business organisation usually takes the following forms inIndia:

(1) Sole proprietorship

(2) Partnership

(3) Joint Hindu Family

(4) Cooperative Society

(5) Joint Stock Company


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Sole Propietorship

A form of business organization that is owned and managed by oneindividual who assumes all risk of loss and receives all profits.

CHARACTERISTICS OF SOLE PROPRIETORSHIP

a) Single Ownership:

(b) No Separation of Ownership and Management

Less Legal Formalities

No Separate Entity

No Sharing of Profit and Loss

Unlimited Liability

One-man Control


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MERITS

Easy to Form and Wind Up

Quick Decisio and Prompt Action

Direct Motivation

Flexibility in Operation

Maintenance ofBusinessSecrets

Personal Touch


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Limitations

Limited Resources

Lack of Continuity

Unlimited Liability Not Suitable for Large Scale Operation

Limited Managerial Expertise


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PARTNERSHIP

Characteristics:

Two or More Persons

Contractual Relationship

Sharing profits of business Existence of Lawful Business

Principal Agent Relationship

Unlimited Liabilities

Voluntary Registration


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Characteristics:

Two or More Persons

Contractual Relationship

Sharing profits of business Existence of Lawful Business

Principal Agent Relationship

Unlimited Liabilities

Voluntary Registration


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Merits

Easy to Form

Flexibility in Operation

Availability of Larger Resources Better Decision

Sharing of Risk

Active Participation

Benefits of Specialisation

Protection of Interest

Secrecy


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Limitations

Instability

Unlimited Liability

Nontransferability of share Limited capital

Possibility of conflicts


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Based on extent of participation :

Active Partners &Sleeping Partners

Based on sharing of profit :

Nominal Partners & Partners in ProfitsBased on liability :

Limited Partners &General Partners

Based on nature of behaviour :

Partners by Estoppel & Partners by Holding Out


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JOINT HINDU FAMILY FORM OF BUSINESSORGANISATION

Characteristics:

Formation

Legal Status

Membership Profit Sharing

Management

Liability

Continuity


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Merits

Assured Shares in Profits

Quick Decision

Sharing of Knowledge and Experience Limited Liability of Members

Unlimited Liability of the Karta

Continued Existence


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Distinctions in forms of business

Cost and formality of organization,

transferability of ownership interests,

continuity of existence,

management, and control,

ability to obtain capital and credit,

method of participation in profits, vulnerability to personal liability, and taxation of the

enterprise.


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Limitations

Limited Resources

Lack of Motivation

Scope for Misuse of Power

Instability


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The important objectives of cooperative society form ofbusinessorganisation are:

service in place of profit,

Mutual help in place of competition,

Selfhelp in place of dependence,

and moral solidarity in place of unethical businesspractices.


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Characteristics

Voluntary association

Open membership

Number of members Registration

State control

Capital

Democratic set up

Service motive

Return on capital

Investment


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Types

Consumers co-operative society

Marketing co-operative society

Producers co-operative society

Housing co-operative society

Farming co-operative society


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Merits:

Easy to form

Limited liability

Open Membership State Assistance

Stable life

Tax concessions

Democratic Management


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Limitations:

Limited Capital

Lack of Managerial Expertise

Less Motivation Lack of Interest

Dependence on govt.


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Joint Stock Company

A company form of business orgnisation is known as a Joint StockCompany.

voluntary association of persons who generally contribute capital to carryon a particular

type of business, which is established by law and can be dissolved onlyby law.

Personswho contribute capital become members of the company.

has a legal existence separate from its members, which means even if its

members die, the company

remains in existence.

This form of business organisations generally requires huge capital

investment, which is contributed by its members.


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The total capital of a joint stock company

is called share capital and it is divided into a number of units calledshares.

Thus, every member has some shares in the business depending uponthe amount of capital contributed

by him.

Hence, members are also called shareholders.

The companies in India are governed by the Indian Companies Act,1956. The Act defines a company as an artificial person created bylaw, having a separate legal entity, with perpetual

succession and a common seal.


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Characteristics of Joint Stock Company

(i) Legal formation

(ii) Artificial person

(iii) Separate legal entity(iv) Common seal

(v) Perpetual existence

(vi) Limited liability of members

(vii) Democratic Management


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Types of companies-

On the basis of ownship Private limited Companies

Public limited Companies

Government CompaniesOn the basis of nationality Indian Companies

Foreign Companies


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Advantages of Joint Stock Company

(i) Availability of large financial resources

(ii) Limited liability of members

(iii) Benefits of professional management(iv) Large-scale production of goods and services

(v) Beneficial for the society

(vi) Emphasis on Research and Development


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Limitations of Joint Stock Company-

(i) Difficult to form

(ii) Excessive government control

(iii) Delay in policy decisions(iv) Concentration of economic power and wealth in few hands.


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A company which is registered in one country but carries on business operationsin a

number of other countries by setting up factories, branches or subsidiary units is

called Multinational Company.

! Features of Multinational companies-

(i) International operation

(ii) Large size, and

(iii) Centralised control


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Advantages of Multinational Company-

(i) Investment of foreign capital

(ii) Generation of employment

(iii) Use of advanced technology.

Growth of ancillary units

(v) Increase in exports and inflow of foreign exchange

(vi) Healthy competition in the market.

! Limitations of Multinational Company-(i) Least concern for priorities of host countries

(ii) Adverse effect on domestic enterprises

(iii) Change in tradition and culture

LEGAL ISSUES IN


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LEGAL ISSUES INENTREPRENEURSHIP

It is important for the manager, particularly the manager of a new venture, tounderstand and use the law as a tool in corporate strategy.

Law is too vital and strategic to be left to the legal department or externalcounsel alone.

A company should cultivate compliance strength.

It is vital to appreciate and understand the role of the law in the value creationchain.

Expertise in the rules [of any game] provides a competitive advantage.

There are federal, state, local and, in some cases, regional requirements that mayapply to your business

In business, legal knowledge helps organisations gain profits in three ways:

LEGAL ISSUES IN


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It is important for the manager, particularly the manager of a new venture, tounderstand and use the law as a tool in corporate strategy.

Law is too vital and strategic to be left to the legal department or externalcounsel alone.

A company should cultivate compliance strength.

It is vital to appreciate and understand the role of the law in the value creationchain.

Expertise in the rules [of any game] provides a competitive advantage.

In business, legal knowledge helps organisations gain profits in three ways:


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Property Law which usually penalises monopolies is quite generous ingranting legal monopolies to encourage innovation and development.

Copyright the form of intellectual property at the heart of the Napster case provides a great example of the evolution of modern property rules and their

growing importance to business.

Rules defining Markets The law creates competitive advantage by definingthe boundaries of markets.

Legal capabilities The development of specialised legal capabilities resources and skills allows a company to spot opportunities, take initiatives andfend off attacks especially well, relative that is, to rivals.

LEGAL ISSUES IN


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14 Legal Tips for Starting Up

what the successful entrepreneurs should know about the law whenstarting up.

1. Watch Out for Your Advice2. Consider Vesting Your Equity Over Time3. Get Protection From Deadbeat Clients

4. Beware the Costs of Hiring Contractors

5. Establish a Buy-Sell Agreement6. Limit the Company Transparency

7. Harness the Power of Documentation


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8. Take Notice of Trademarks

9. Prepare for Employee Issues10. Keep Up With the Contracts

11. Read Those Terms of Service

12. Hire a Trustworthy Lawyer13. Look Out, Lawyers Get Expensive

14. Always Read the Fine Print


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Top Ten Legal Mistakes Made by Entrepreneurs

# 10: Failing to incorporate early enough.# 9: Issuing founder shares without vesting.#8: Hiring a lawyer not experienced in dealing with entrepreneurs andventure capitalists

#7: Failing to make a timely Section 83 (b) election

# 6: Negotiating venture capital financing based solely on the valuation.


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#5: Waiting to consider international intellectual property protection

#4: Disclosing inventions without a nondisclosure agreement, or before thepatent application is filed.#3: Starting a business while employed by a potential competitor, or hiringemployees without first checking their agreements with the current

employer and their knowledge of trade secrets.#2: Promising more in the business plan than can be delivered and failing tocomply with state and federal securities laws.#1: Thinking any legal problems can be solved later.


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The IP Chain of Activities

Creation

Innovation

Commercialization

Protection

Enforcement


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Intellectual Property

Copyright

Industrial Property

a.Trademarksb. Patent

c. Industrial designs

d. Confidential information

E Geographical Indications


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IP as Intangible Property

Tangible property

Land, houses, estates,car

Intangible property

-intellectual property

Intangible wealth, easily appropriated andreproduced,once created the marginal cost of

reproduction is negligible


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Role of IP as Intangible property

1 economic rights of creators

2.commercial exploitation of owner of IP

3.capital expenditure

4.transfer of technology

5.cultural development


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WHY IP PROTECTION?

Capital expenditure for new products

R and D

Marketing and advertisement

No free loaders

Maintaining loyal followers

profit

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